Pension Freedom Day in the United Kingdom: Early evaluation of consumer response

Understanding decumulation decisions in retirement is an important component of public policy that influences pension regulations in aging societies. This research examined a recent, substantial change to pension regulation in the United Kingdom: the newly established flexibility to obtain a lump-sum payout from personal or occupational pension savings. Conducting an online survey of individual's eligible to take advantage of the Pension Freedom regulation, we find that almost half of study participants plan to obtain a lump-sum payout, on average 33,741 pound, intending it for an average of three different investments or purchases. The decision to obtain a lump-sum withdrawal was related to better knowledge of the new regulation. It was also more likely among older respondents and those not worried about a decline in standard of living during retirement. Dispositional measures did not affect the lump-sum decision. Close to one-third of study participants still planned to invest retirement savings into an annuity, especially those who retire at a later age, have concerns about care costs and worry about decline in standard of living in retirement. Comments about the changes to pension regulation were slightly more positive than negative. From our analysis of the effect of the Pension Freedom regulation on savings decumulation decisions, we conclude that the new Pension Freedom regulations do meet consumer demands, and demonstrate that pension knowledge and retirement expectations, in particular, influence consumer evaluations. We further conclude that annuity investments continue to play a role for older adults in the United Kingdom, especially for those concerned about meeting financial needs during retirement.